Mining Deep for Gold

Gold has been moving essentially sideways for more than a year since printing a high in August/September 2011. With last week’s drop to below the lows of last December/ January many investors must be asking ‘where is the bottom in gold?’

Since 1980 gold has seen a pattern of important lows every 3-5 years. Typically, a long 5-year span between lows is shortened during the following cycle and a short 3-year span reverts back to a four or five year cycle. While the lows of last summer would have made for a nice 4-year, trough-to-trough cycle, the fact that the previous cycle between 2005 and 2008 was only three years implied that the current cycle could expand to something closer to five years. A 5-year cycle would tend to exert downward pressure on gold until as late as this autumn. This gives us a targeted low between now and October.

On a shorter time-frame, gold exhibits a 48-week cycle. Since the low in 2001 it has varied between 47 and 50 weeks with one 61-week period in 2007. The next expected trough from a 49-week cycle can be expected in, or near, the week of May 13, 2013.

Gold came close to my initial target of 1,595 at last Friday’s intra-day low of 1,599.50. This target was based on a triangle which formed inside the trend channel which gold has been trading within since last October. But with Friday’s break of the 61.8% retracement level of the May advance, combined with a confirming ADX indicator and 3 months before the expected turn explained above, I suspect far greater losses are in store for gold before a bottom is seen.